Google Awaits Fate in China as Internet License Deadline Looms

Google Inc. is awaiting its fate in China after the search-engine operator submitted a revised proposal to keep its Internet license in the world’s biggest Web market by users.

Google, which in January sparked a standoff with China by saying it would stop self-censorship, said yesterday it submitted a revised license application before today’s deadline. The company will point users to an unfiltered Hong Kong site instead of redirecting them automatically after authorities indicated they wouldn’t renew the permit, it said.

The dispute has cost Google market share and partnerships with China Unicom (Hong Kong) Ltd. and Motorola Inc. in the country. The operator of the world’s most-used search engine said in January it would end cooperation with the censorship laws of a state that bans references to content deemed politically unacceptable.

“We believe the slightly diminished experience will cause some user loss, but expect Google to remain in China and continue to play the censorship chess match with the Chinese government,” Gene Munster, an analyst at Piper Jaffray Cos. in Minneapolis, said in a research note. “The Chinese government wants to promote social stability and an outright shutdown of Google would not achieve the goal of stability.”

Authorities will review the Google issue, Foreign Ministry spokesman Qin Gang said at a briefing in Beijing yesterday. Foreign Internet companies should comply with Chinese law, he said.

Likely Block

The government is likely to block Google’s license because the new landing page isn’t that different from what Google did with the site redirection, said Aaron Kessler, an analyst with ThinkEquity LLC in San Francisco. The government would rather work within the license process than just shut Google’s site down, he said.

The new arrangement currently covers “a subset of users,” Google spokeswoman Jessica Powell wrote in an e-mail today. It will cover all users “over the next 48 hours,” she said. The approach allows Mountain View, California-based Google to “stay true” to a commitment not to self-censor search results in China while adhering to local law, Google said yesterday on its blog.

Lost Market Share

Google in March closed its China search engine and began directing users to the Hong Kong site. The shift led its market share in China to fall to 30.9 percent in the first quarter from 35.6 percent three months earlier, according to data from research firm Analysys International. Baidu’s share increased to 64 percent from 58.4 percent, according to Analysys.

Baidu has jumped 64 percent in U.S. trading this year, outperforming other Chinese Internet stocks, as the scaling back of Google’s operations in China helped the Beijing-based company gain sales. Google rose $1.95 to $456.21 at 9:41 a.m. New York time in Nasdaq Stock Market trading. It had dropped 27 percent this year before today.

By moving the Chinese service offshore, Google avoided local rules for websites to self-censor content deemed unacceptable by the government. Search results served by Google’s redirected site have since been screened by China’s so- called “Great Firewall,” the monitoring system operated by government censors to block overseas services such as Facebook Inc. and Google’s YouTube.

‘Great Firewall’

The “Great Firewall” limits Chinese Web users’ access to information on topics ranging from Tibet’s independence to the 1989 crackdown on democracy protesters in Tiananmen Square.

For Google, a closure of the Chinese site would end four years of clashes with the government over censorship and highlight the challenges global companies face operating in a one-party state that controls the flow of information.

The company in January said it would stop censoring content after its computers were hacked from within China. The company said then its systems were targeted by “highly sophisticated” attacks aimed at obtaining proprietary information, as well as personal data belonging to human-rights activists who use the company’s Gmail e-mail service.

Google would have generated $600 million in annual sales this year in China, according to estimates by JPMorgan Chase & Co. in January. That’s about 2 percent of the company’s projected total revenue this year, according to the average of 28 analyst estimates compiled by Bloomberg.

China had 384 million Internet users at the end of 2009, the government estimates. That’s more than the total U.S. population. The number may grow to 840 million, or 61 percent of the Chinese population, by 2013, according to EMarketer Inc. in New York.

“If Google wants to continue operating in China, it will have to get used to more vacillations from the authorities, said Charles Mok, chairman of the Hong Kong branch of the Internet Society, an international industry body. ‘‘In this confrontation between Google and the Chinese government, there are quite a few instruments at the disposal of the government that could be brought to bear on Google.’’

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Mark Lee in Hong Kong at wlee37@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.